Philanthropy In Australia

Transcription

1 Philanthropy In Australia Introduction 10 May 2013 Philanthropy has a wide range of varying meanings to different people. Perhaps the biggest misunderstanding associated with philanthropy is that a person must be of significant financial means in order to become a philanthropist. In essence, Philanthropy may be defined as the planned and structured giving of time, information, goods and services, voice and influence, as well as money, to improve the wellbeing of humanity and the community. It is the giving by individuals, families or businesses with no expectation or desire to receive anything in return. HIGHLIGHTS & KEY POINTS Philanthropy in Australia may take either of three forms During one s lifetime On death or Private or Public Foundations What follows is a review of philanthropy in Australia and the varying options available to best achieve ones philanthropic goals. Philanthropy in Australia Philanthropy in Australia has historically not been as prevalent as it is in other Western nations such as the United States of America and various parts of Europe. However, given that Australian s are currently experiencing the largest handover of inter-generational wealth in Australian history, the trend towards philanthropy is rapidly growing. The wave of growth of philanthropy in Australia has been underpinned by a consistently strong Australian economy coupled with the rise of both private and corporate wealth in Australia during the 1990s. The growth of philanthropy in Australia has predominately been in three main forms, those being: 1) Gifts during a person s lifetime; 2) Testamentary charitable foundations established by Will; and 3) Public or Private Funds established by way of Trust Deed and/or companies limited by guarantee. Level 7, 70 Castlereagh Street, SYDNEY NSW 2000 Telephone: (02) Facsimile: (02) Website: Philanthropy has been encouraged by government reforms to build greater community and business engagement and corporate social responsibility. PL38454 Philanthropy in Australia Page 1

2 For example, the Prime Ministers Community Business Partnership was a major driver in the growth of Philanthropy in Australia due to its goals which included identifying and addressing incentives and impediments to corporate social responsibility and encouraging a culture of giving in Australia. The Partnership operated from 1999 until 2007 when the election of a new Government prompted the programs discontinuance. The Partnership comprised of a group of prominent Australians from the community and business sectors, appointed by the then Prime Minister John Howard to advise and assist the Government on issues concerning individual and corporate social responsibility. The Partnership s goals included identifying and addressing incentives and impediments to corporate social responsibility and encouraging a culture of giving in Australia. During its time of operation, the Partnership introduced a number of initiatives and tax concessions to promote Philanthropy in Australia. Of particular significance were the following: a) The introduction of Prescribed Private Funds (PPFs), which are now known as Prescribed Ancillary Funds (PAFs); b) The introduction of the Workplace Giving Initiative - a scheme that allows employees to make tax deductible Donations from their pay; c) As of 1 July 2002, tax deductions for property valued at $5000 and over donated to deductible gift recipients (DGRs) are able to be spread over a period of up to five; and d) As of 1 July 2003, deductions for cash Donations of $5000 or more to DGRs are able to be spread over a period up to five years. DGR is defined as the tax deductibility status of a Donation which relies on a charity, foundation or Trust being approved as a deductible gift recipient (DGR) by the ATO. How Is Philanthropy Practiced? Philanthropy is practised in three ways: 1. By personal involvement. That is, by the giving of our time, labour, and expertise; 2. By giving money or property directly to charitable organizations thereby enabling them to spend the funds as they choose on their current projects or operations; or 3. By giving money or property to philanthropic foundations or trusts which support Donor selected causes (Donation). The Donation is added to the capital base of the philanthropic foundation and the income derived from its investment provides an income stream for distribution for charitable purposes. Lifetime Philanthropic Structures In addition to the commonly known public and ancillary funds, in this new philanthropically disposed environment, Estate practitioners and financial advisors now have three additional vehicles in which their clients are able to gift property, those being: a) Donor advised Sub-Funds (DASFs); b) Prescribed Ancillary Funds (PAFs); and c) Charitable Remainder Trusts (CRTs) Each of these enable individuals and corporations to establish their own private foundations at an affordable entry cost on the basis that all Donations of income as well as capital are made only to ATO approved DGRs.

3 Donor Advised Sub-Funds DASFs provide most of the benefits of a private foundation without the cost and expense of establishment. Put simply, a DASF is an account that allows the Donor the opportunity to make multiple charitable Donations through a single fund. This can be extremely beneficial in situations where, for example, a Donor has received a lump sum of money and would like to make charitable gift distribution decisions over time. A tax deduction is available on the lump sum in its entirety immediately upon making a gift to the DASF, however distribution to various charitable funds can come at a later time. A Donor and their advising practitioner must determine if a DASF is the most suited vehicle for meeting the clients philanthropic goals. It must be remembered that DASFs are not a technique to be used if the Donor wants income from the donated asset. If income is a priority, the Donor should instead consider alternatives. Further, the client should bear in mind that although they are able to recommend to the sponsoring organisation the charities which he or she wished to make grants, the organisation has the final say over the final distribution. If a valid charity is recommended by the Donor, the recommendation will be followed, however the Donor does not have ultimate control over the funds. Prescribed Ancillary Funds A PAF is a fund established by trust instrument to which businesses, families and individuals can make tax deductible Donations. The fund may make distributions only to other DGRs that have been either endorsed by the ATO or are listed by name in the income tax law. Additionally, PAFs must not fundraise from the public. The sole purpose of a PAF must be to provide money, property or benefits to funds, authorities or institutions, gifts to which are DGRs. These include public benevolent institutions, health promotion charities, overseas aid funds, organisations on the register of cultural organisations and organisations on the register of environmental organisations. A PAF cannot have other purposes. A PAF can be controlled by an individual, family or corporate group and are generally quite easy and cost effective to establish. The use of a PAF gives the Donor control over which eligible charities or causes are supported and how. The Donor defines the purpose of the fund and chooses how Donations are to be used There are generally a number of income and capital gains tax incentives associated with PAFs. Charitable Remainder Trusts A CRT is an arrangement whereby property or money is donated to a charity, however the Donor continues to use the property and/or receive income from it whilst living, or up until a specified time. The charity receives the principal after a specified period of time or when the Donor becomes deceased. Under this philanthropy vehicle the Donor is able to take advantage of many tax incentives based on the donated assets and will also receive an income tax deduction for the fair market value of the remainder interest that the trust earned. Whilst the contribution is irrevocable, the Donor may have some control over the way the assets are invested, and may even switch from one charity to another so long as the new charity still qualifies as a charitable organisation. Philanthropic Giving Upon Death There are also many options available to achieve your philanthropic goals upon death. Firstly, and perhaps the most obvious, is testamentary gifts of cash or property directly to a nominated charity, trust or foundation that is eligible to accept gifts. PL38454 Philanthropy In Australia Page 3

4 You may choose to gift a defined sum, a percentage of your estate, specific property or the residue of your estate once all other gifts have been distributed. In any case, it is important that you accurately define the specific charity or cause that you wish your Donation to be received by. A second option available to you is to create a testamentary trust in your Will. This is a trust that is established in your will and arises upon your death. The term testamentary trust is generic as there are a number of various trusts which can be established under a Will. Many philanthropic foundations in Australia are testamentary trusts which have been established for public charitable purposes. Charitable testamentary trusts are entitled to be endorsed as Tax Concession Charities so that they are exempt from income tax and entitled to refunds of franking credits on dividends they receive. Further, there are a vast array of tax concessions that need to be considered in order to determine the most appropriate option available to you. Pavuk Legal is able to assist you in ensuring all your philanthropic goals are achieved through your Estate Planning instruments. Which Structure Is Best For You? At Pavuk Legal we are able to ascertain how your philanthropic agenda is best achieved. This should be determined by balancing out the pros and cons associated with making direct Donations to an operating charity of your choice as compared to making direct Donations to a DASF, PAF or CRT. In this respect, Pavuk Legal are competent to advise on the various range of structures and the charities only tax concessions that are available to support your personal and philanthropic agendas. In particular, we are able to establish whether our clients do in fact have a philanthropic agenda as Donations to approved charities attract special taxation concessions that can be financially advantageous to the client. The questions which need to be asked in order to provide for a comparison of the two most common private foundations, and hence assist you to select which is most suited to your needs are: a) How much time and money do you want to dedicate to the formation and ongoing management of the foundation and grant making programs? b) How much extra capital do you reasonably expect to add over the next few years to build the capital base and consequent income streams needed to fund the mission of the foundation? c) How important is it that you will be able to control the investment decisions of the foundation? d) How important is it that you will have control over the grant making decisions made by the foundation? e) Is a level of privacy with regard to your gifting programs important? f) Is the memorial value of having your own named private foundation important? g) Is the capacity of the foundation to operate and support your philanthropic mission in perpetuity important? h) Would you like to see your family and future generations, or business, involved in, carrying the foundation s philanthropic agenda forward?

5 Pavuk Legal Services Pavuk Legal can assist you on many legal aspects in relation to your philanthropic requirements including review and advice on which vehicle is most suited to your state of affairs as well as establishing philanthropic structures to suit your needs. For further information please contact: Please contact: Andrew Pavuk Phone: Or Andrew Dickson Phone: Or Joseph Ho Phone: This article contains comments of a general nature only and is provided as an information service only. The article also reflects the law as at the date it was written and may not take into account any recent or subsequent developments in the law. The article is not intended to be relied upon, nor is it a substitute for specific professional advice. No responsibility can be accepted by Pavuk Legal or the author(s) for any loss occasioned to any person doing anything as a result of anything contained in the article. In order to obtain appropriate legal advice particular to your circumstances, please contact either Andrew Pavuk on , Andrew Dickson on or Joseph Ho PL38454 Philanthropy In Australia Page 5